The M-C-M’ (M-money, C-commodity, M-money) movement of exchange, describes how capitalists transform money into capital (i.e. more money) through the process of production and exchange.

It begins with an initial amount of money, which the capitalist uses to buy commodities, that are then used to create new products (with more potential value than the investment). The capitalist then sells these goods for a higher amount of money (M’ plus m) to make a profit.

The second stage in building wealth, the capitalists turn money into capital by investing is to make more money. To get there, capitalists must also buy the means of production to allow labor power to function and to produce goods that can be sold for more than the cost of production and the initial investment and to create a surplus value (the added work performed by laborers beyond what is needed to produce the products which equivalent to their salary), the capitalist need to acquire 3 things: (1) buildings, tools and equipment, (2) raw materials and other supplies and, (3) labor power. The surplus value is considered profit for the capitalist. The surplus value is then reinvested, allowing the capitalist wealth to increase. This creates a cycle that, if profitable enough, allows the capitalists to keep, maintain and grow their wealth and economical power.

The M-C-M’ model shows how capitalists increase their wealth. It starts with Money (M), which is used to buy Commodities (C), like factory machinery or raw materials. These are turned into new products, which are then sold for more Money (M’). Profits are made by paying workers for less than the value of what they produce. The portion of labor that generates value beyond the workers’ compensation is called surplus labor, which turns into profits for capitalists. For example, let’s say the capitalist spends $100 on cotton and in hiring workers to turn this cotton into T-shirts. Once these T-shirts are made, they are sold for a higher price, let’s say $200, turning the initial investment into more money (M’). This profit of $100 is what’s called surplus value. The capitalist then reinvests some or all of this profit into buying more commodities, like more cotton or better machines, continuing the cycle. This ongoing process allows the capitalist to keep growing their wealth, always ending the cycle with more money than they started, which is how they remain wealthy over time.

1. As we learned thus far, the capitalist class consists of people who own wealth, as well as the means of production in American society. An important question in understanding how this class works is to ask: how does a capitalist remain wealthy? The answer to this question depends largely on understanding the diagram M-C-M’. So, let’s practice by explaining what happens in this diagram in our own words (but basing our ideas on Reading 5.1). Respond to the following question: Explain M-C-M’ to show how capitalists maintain and increase their wealth. (hint: your answer should weave a summary that includes what you reviewed in the self-assessment exercise question 1-7)